PMIs Switch Gravity Back on in Europe

For quite some time now, those who’d like you to buy European stocks have been pointing to the relative resilience of economic numbers on this side of the Pond.

The U.S. recovery may have slowed to a snail’s pace by all sorts of measures, with employment, housing and corporate-spending plans inching along, if they’re moving at all. But Europe seemed comparatively perky and immune.

The usual old reasons were trotted out: the euro zone’s broad internal market, Germany’s wonderful export exposure to areas other than the U.S. You name it.

But, as with all such ‘decoupling’ theories, you only have to wait a while before they meet a grimmer reality. And unravel.

Recall that, before credit crunched, there were those who said this multipolar world of ours meant emerging economies would barely miss a beat if Western capitalism collapsed. Turns out their markets fell further and harder than New York, London and Frankfurt, even if they recovered faster too.

But now some important data have cast severe doubt on Europe’s future resilience. September’s purchasing managers’ indexes from across the euro zone have disappointed market expectations, in some cases severely, both on a country-by-country basis and for the zone as a whole. Read our coverage here.

The bloc’s manufacturing sector PMI fell from 55.1 to 53.6, the fourth deterioration in five months and the lowest level since January, with new orders at their worst pitch for a year.

The services PMI, meanwhile, which had done comparatively well, also fell much more sharply than expected. This left the composite index down at 53.8 from 56.2, indicative of much weaker growth heading into the final quarter of this year.

“There is often a period when, due to the lagged impact of slower external growth, the euro-zone economy appears to be defying gravity, leading to speculation that it will ‘decouple’ from developments elsewhere,” said analysts at BNP Paribas. “Typically this is then followed by a dose of reality as the euro-zone economy falters as weaker activity elsewhere takes its toll: the PMI data today suggest that this is now occurring.”

It’s back to the drawing board for all those equity salespeople. Again. Perhaps they can snag a buyer or two on hopes for more quantitative easing. Yes. That should do the trick.

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